P.S.F. results hindered by animal health issues

February 01, 2007
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by Keith Nunes

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KANSAS CITY — Animal health issues related to an outbreak of Porcine Circo Virus hurt Premium Standard Farms’ financial results for the third quarter of fiscal 2007, which ended Dec. 23. Net income for the quarter was $2,935,000, equal to 9c per share on the common stock, compared with net income of 13,754,000, or 44c per share, for the same period last year.

Net sales for the quarter declined 8% to $224,317,000, which compared with $242,899,000 for the same period during fiscal 2007. Net sales for the quarter were negatively impacted by a $22.4 million decrease in total volume, which the company attributed to health-related issues in its production segment. The decline, however, was slightly offset by an improvement of $2.9 million from lean hog and wholesale pork prices, as well as a $900,000 increase over the same period last year related to lean hog futures.

"Despite the strength of current live hog and wholesale pork prices, lingering health issues in our production segment and significantly higher feed costs negatively impacted our operating results," said John Meyer, chief executive officer and president of Premium Standard Farms. "We expect to experience improvement in our herd health in the upcoming fourth quarter resulting from the increased vaccinations, but we still expect to produce lower volumes than in the fourth quarter of last year because of health issues. Conversely, in our processing segment, we were pleased to realize anticipated improvements in both our sales margins, as well as a 13% increase in operating income for the quarter. As we look to the future, we continue to work closely with Smithfield Foods and the appropriate regulatory agencies to complete the proposed merger."

This past September, Premium Standard Farms and Smithfield Foods announced plans to merge. Under the terms of the agreement, each share of Premium Standard Farms will be converted into the right to receive 0.678 of a share of Smithfield Foods’ common stock plus $1.25 in cash. A special meeting of stockholders of Premium Standard Farms, Inc. will be held on Feb. 23 to vote to adopt the agreement.

The company reported net income for the first nine months of fiscal 2007 of $14,794,000, or 47c per share, compared with $41,356,000, or $1.34 per share, for the same period last year. Net sales declined to $650,872,000 in fiscal 2007 from $701,437,000 in fiscal 2006.

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